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Communist Markets: Economic Progress in North Korea

While North Korea is still committed to operating as a communist state and its population still struggles with high levels of malnourishment, North Korea has recently exhibited promising economic growth and a surprising acceptance of free market practices. North Korean economic data is limited, but there has been an estimated 1%-5% growth in real GDP through the first five years of Kim Jong Un’s rule and the heavily monitored private sector is estimated to now make up 30%-50% of North Korean GDP. Kim Jong Un has embraced the positive economic impacts of free trade, as the amount of government approved markets have doubled to 440 over the past six years. North Korean defectors and tourists have noted an increased presence of economic competition; the streets are filled with competing taxi companies and convenient stores carry as many as ten brands of toothpaste. This increase in competition has the potential to drive the improvement of goods and is reminiscent of a capitalist economy.

Illegal Markets began to form in North Korea in response to extreme levels of famine during the 1990’s. When North Korea lost Soviet aid, citizens struggled to feed their families with their government sponsored jobs, and underground markets formed where citizens could trade goods to get more food. After the extreme food shortages ended, the markets persisted and Kim Jong-Il gave permission for some of these markets to continue existing under strict government regulation. Under Kim Jong Un however, North Korea has begun to relax regulations against free market trading; entrepreneurs can more easily buy status as a legal business and a growing class of businessmen called “donju” have been able to practically run private enterprises, independently buying their own factories and hiring workers under the title of a state operated business. Kim Jong Un has used this economic progress as a means of gaining popular support, even going as far as ordering the execution of Pak Nam-Gi, a monetary policy advisor who looked to restrict the liberties of the growing free market.

This economic progress however is still threatened by the intense North Korean devotement to communism as well as strict trade sanctions. As North Korea develops their nuclear missile program, they risk losing their main trading partner, China. China has cut exports to North Korea by 35% this March and has refused to buy any coal from North Korea as punishment for its nuclear tests. This is particularly dangerous for the free market in North Korea as China is responsible for 80% of their goods.
The increase of market presence also poses a unique and interesting opportunity for the North Korean people to get a glimpse into foreign markets and begin to question North Korea’s status. To maintain his popular support, Kim Jong Un has to find a balance in the communist ideals that his nation prides themselves in, and the market economy citizens have begun to grow accustomed to. North Korea’s slow realization of a market economy has been compared to China’s shift to capitalism in the 1980’s, and while they are still far away from this transition, they appear to be on a simmilar path. North Korea is still far from economic security, 70% of the population still relies on government sponsored food aid and 40% of the population is still malnourished, but the increased use of trade and competition looks promising for its people.

2 thoughts on “Communist Markets: Economic Progress in North Korea”

There is an interesting comparison to the fall of the Berlin Wall here. One of the symbols of the opening of East Germany to the West was, of all things, the banana. It was one of the first things many East German bought when they came across to West Berlin. The fact that the communists couldn’t supply bananas to its people, a fruit that is cheap and plentiful in any capitalist economy, was a symbol of the failure of the government.

It is surprising that North Korea demonstrates certain capitalistic ideas and has been slowly incorporating them into their economy. I am curious about what President Trump plans on doing with regard to their nuclear weapons program and how that may have ramifications on their economy.